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Credit rating affected car insurance rates

By SUZANNE PALMER
Published September 1, 2006

I recently received a renewal notice for my auto insurance policy. I was stunned to see that the company wanted to raise my premium more than $200 a year.

While looking through the policy information, I came across a notice saying that information in my credit report prevented my being eligible for the best rates the company can provide. It indicated that the number of accounts opened within the past 24 months and the number of recent inquiries into my credit as a result of applying for new credit affected my premium amount.

I printed my credit report from TransUnion. Only three accounts were opened in the past 24 months, and all have been paid off. Multiple inquiries had been made, but only three resulted from credit applications. Since I have no control over the inquiries, I don't see why they should affect my credit rating. I called my auto insurer but didn't get any satisfactory answers.

I've had my policy for more than 20 years and have never submitted a claim. My premiums are always paid on time. I was very upset they would treat a longtime customer this way. I shopped around for a new insurer and obtained a new policy that gave me a much better rate and higher levels of coverage.

However, when I received its information packet in the mail, again there was a notice that, because of my credit report, I am not eligible for the best rates.

I would like to know why information from my credit report dictates what premium I pay for insurance coverage. And I would also like some information about what, if anything, I can do to bring my credit rating up to the level where I qualify for the best rates.

Can you shed some light on the issue?

- C.J.

Your situation is a great opportunity to remind readers about how much your credit rating can affect your lives. The Federal Trade Commission says the information in your report is used to evaluate your applications for credit, insurance, renting an apartment or even for employment.

That's right. Potential employers are not only checking your driving, civil and criminal history, they're checking into your finances too. Your permission to do so is required, however.

Allstate is one of many auto insurers that use information in credit reports to "more accurately determine the risk presented by a given customer," according to allstate.com. Insurance companies consider only those items relevant to insurance loss potential. So, while your credit rating might be fine if you're shopping for a mortgage or car loan, it may look different to a potential insurer.

At the end of 2004, the average household credit card debt was $9,300. You are carrying more than $22,000 in actual charge and credit card debt, according to your credit report. This does not include a mortgage, a car loan and a car lease.

Your potential for debt, based on your current combined credit limit, is more than $100,000. You have been at your current job for less than two years. The amount of debt you owe and your debt potential may be what's preventing you from being offered the best rates.

You are absolutely correct: Inquiries to your credit report from businesses that are pre-screening you for offers do not affect your credit rating. The FTC says only those companies who make inquiries because you have applied for credit will make a difference.

Times' business writer Helen Huntley offers these tips for improving your credit score. "In addition to paying bills on time, pay down credit card balances. For the best credit score, continue using your credit cards but keep balances below 30 percent of the credit limit on each card." She also suggests being careful with new credit applications. While handling new accounts responsibly may help your credit score in the long run, in the short run they can be a problem.

The FTC offers several helpful consumer publications on how to make the most of your credit use. Call the Consumer Response Center toll-free 1-877-382-4357 or visit www.ftc.gov/bcp/conline/edcams/credit/index.html.

Consumer Credit Counseling Service of the Florida Gulfcoast can also be a valuable resource. CCCS is a nonprofit and accredited organization that provides financial counseling and education services. Call toll-free 1-800-741-7040 or visit www.cccsfl.org for information.

Action solves problems and gets answers for you. If you have a question, or your own attempts to resolve a consumer complaint have failed, write Times Action, P.O. Box 1121, St. Petersburg, FL 33731, or call your Action number, (727) 893-8171, or, outside of Pinellas, toll-free 1-800-333-7505, ext. 8171, to leave a recorded request.

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[Last modified August 31, 2006, 10:22:29]